The petroleum complex traded in a volatile fashion with active selling interest developing early in response to the announcement by Trump that he would sharply hike tariffs on Chinese goods this week. The news appeared to raise anxiety that an agreement in the trade talks would not be reached at negotiations that had been planned this week in the US. Reports the Chinese were considering cancelling all trade talks with the US appeared to lead to concerted selling interest. Despite the news overnight some caution was apparent which led to light bargain hunting buying on ideas that OPEC will be more inclined to maintain output curbs despite Russian intransience. However in the background will remain the prospect that the Chinese economy willl be hurt if tariffs of up to 25 percent are imposed.
We still look for values to encounter good resistance on recoveries toward the 63.50-64.00 level basis June. Nervousness will likely be posed by the movement of a US carrier into the Persian Gulf and growing tension. Venezuela will also remain in the background following last weeks unsuccessful attempt at overthrowing Maduro. Nevertheless the focus will likely move to US inventories to be reported Wed which are expected to build by .7 mb. Gasoline inventories also will be watched given the build last week and increase in runs Current forecasts point to a draw of .9 mb. We still feel the ability of the US to block the Iranians from exporting oil might be difficult but rising tension in the region could ensue and increase volatility. Balancing the market amid such uncertainty will be difficult for OPEC+ as the need to maintain market share as US production expands is balanced against price levels that fulfill domestic objectives. Subsequently rising inventories not only in the US but also in Europe and Asia will need to be watched closely as the crude market assesses the impact of US sanctions on Iran. In addition potential growth of demand in both the European and Asian economies will be a key variable as well.
Weaker demand for Nat Gas estimated near 77 bcf due to warmer weather at a time when production is at record levels of 89 bcf continues to undermine rally attempts and has led to good selling interest on ideas that stocks will build. Forecasts for this week’s EIA report suggest that utilities have likely added 86 bcf for the week ended 5/3 compared to last year’s build of 85 bcf and five year average of 72 bcf. Inventories still remain over 16 percent below the five average . With weather currently offering a neutral to bearish influence, expect range bound trade as we get thorough the shoulder months and begin to evaluate summer weather trends.
Charts Courtesy of DTN Prophet X
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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